Printing Money with Extra Land: Tips for Subdividing Lots

Mike DeHaan: [0:02] On Air brands.

Dan Austin: [0:04] I would say per lot in like a market like ours, which is, would say mid range expensive, not the most expensive, but we're in the middle. We're we're a decently expensive secondary market. Right? And actually that doesn't even matter because everywhere is going to be different on depending on your taxes and what your county and city, requires as as state, but we were 10 to 12,000. So if you're going to do a few different lots, you're going to probably be, you could probably estimate that much. It will definitely be a per lot thing, but as you gain scale, it won't be, you know, 10,000 per lot. But, half of that cost was just paid to pay the surveyor.

Speaker 3: [0:39] Welcome to the collecting keys real estate investing podcast with your host, Mike DeHaan and Dan Austin. From wins, losses, horror stories, and tactics for optimizing your business, Mike and Dan take a real uncensored deep dive into the ins and outs of running a full time real estate investment and wholesaling business.

Mike DeHaan: [1:02] What's going on, everybody? Welcome to episode 41 of the collecting keys real estate investing podcast. And, Dan, it is finally happening. Something that I have been predicting for the bulk of the last, like, year and a half, I would say. The Airbnb market is bursting. Oh, man. Everyone that I talked to that has Airbnb's, you know, of any real capacity, they're just like, oh, yeah. Stuff is down so much right now. Their bookings are significantly lower than last year. They're to drop their prices. Their future bookings are dropping very significantly. I think the only people I've talked to, mostly mostly in, GoBundance, different people that have portfolios kind of over United States, and the only people I've talked to that said they haven't had that are people that have stuff in, like, the Florida, you know, beach sort of areas, which since it's, you know, prime beach time down there makes sense. But people that have things like in the Smoky Mountains, you know, people that have things in, like, Colorado, people that have things all throughout Southern California, a lot of them are like, their Airbnb, they're just a freaking disaster right now.

Dan Austin: [2:13] Yeah. Yeah. I mean, I'm not glad to hear that, but I'm also kinda like, I agree with you. You know, I've had our we're not experts at Airbnb, but we've done our Airbnb stuff and, you know, that it's just like it's just okay. It's not for me. It's not worth the effort. And then when you're when you're underwriting based on STR, like, data that you're using from an epic time in STR history, which was 2021, twenty twenty twenty twenty and 2021, you're gonna probably be missing the target on what your actual cash flow is gonna be. Correct.

Mike DeHaan: [2:44] Yeah. And and see, think that's the thing is, you know, we're not experts at Airbnb. We are experts at analyzing real estate and buying real estate investments at this point.

Dan Austin: [2:52] You know, it's kind of

Mike DeHaan: [2:52] a, I don't know, maybe ego thing to say. But, I mean, we've done, like, a 100 something transaction last couple of years. I think we can officially say we're experts at this point. You know? And Not underwrite deals. You know?

Dan Austin: [3:03] And and the other thing that you don't, like, know getting into is there's actually a lot of additional costs to running an Airbnb, like local, like business operation tax being one of them.

Mike DeHaan: [3:14] Mhmm.

Dan Austin: [3:15] Which you don't have with your long term rentals. At least we don't in our markets. Long term rentals don't get taxed that way. There's just a bunch of other little costs. You you think about the cost of maintenance and, you know, furnishing and all that sort of stuff, but there are additional costs on top of that, that you're kind of like, well, once you learn it, you're like, it's less appealing. Yeah. You know, and I, I would, I would argue that I would still love to own an Airbnb in, on the beach in San Diego or Florida, because people, humans love water. Humans love good weather. They're always gonna go to those even though those places do see kind of a a depression in prices if the market's low because less people are traveling to destinations like that.

Mike DeHaan: [3:50] Yeah. Well, and I I think there's kinda different ways you can, you you have to view them as well. So like a lot of the people that I've talked to, which has been probably about a dozen over the last week or so that have been expressing this situation, the ones who are like, yeah, but like I, my family and I use that Airbnb, so I'm not really that worried about it. Like they go there for vacations. That's fine. That makes And honestly, that's kinda what the system was built for. Like, the system wasn't built for people to have these big empires that they're all running remotely and doing all this this whole sort of

Dan Austin: [4:18] Let's step back to the the system is is what it is, is it's a typical it's actually ingenious. Any of these things like Uber, Toro, Turo, Airbnb, it's using excess capacity in the system. So if you have a primary residence, and it happens to be somewhere where people might go, or even where we're at, like I have a whole basement set up at my house where I wouldn't even know you lived here because it's just separate from the home. And I can rent that out and make a few $100 extra a month or a thousand bucks extra a month. Like that's excess capacity. Right? Yeah. And then when all of a sudden you're buying homes, like, and people start staying there, the biggest, the, you know, over and over again, now you're all of a sudden you're making a $150,000 a month in gross revenue from all of your Airbnb's. That's a business that's different. Might as well buy a hotel at that point. Right? Because that's what you're running. You're running a hospitality business. The one gripe I've I've always had with Airbnb's, and why I typically choose not to stay in Airbnb's, one reason is I don't usually travel with a group of, you know, young adults who are all willing to stay in the same home. I usually travel with my wife and kids, but to the the reason why I have such a gripe is it's like, man, that is super expensive to have the convenience of, like, my own kitchen.

Dan Austin: [5:26] So so expensive.

Mike DeHaan: [5:27] And it didn't used to be that way. Like like when, you know, we first started using Airbnbs, we we I guess, we've used them a lot less recently just because they've been so expensive. But it used to be, like, the cheap alternative. I mean, you know, like you said, it's for excess capacity. Airbnb literally stands for air bed and breakfast. Like, you're supposed to stay on an air bed at someone's house, and then they give you breakfast afterwards, you know, for staying there. Right? Like, that was if you listen to there's an interview with the founder

Dan Austin: [5:50] of Airbnb. One night stand.

Mike DeHaan: [5:52] Kinda. Yeah. I mean, so if if you listen to there's an interview with the founder of Airbnb, Tim Ferriss, that's probably four years old now. He talks about the premise of that. And, like, literally, the whole premise is that, you know, you're you're a guest in these people's house. Like, they're supposed to be super basic hospitality, and they're supposed to be, like, a cheap alternative. And when they launched it, it was mostly around, I think with South by Southwest was the first event that they launched it for. And then it was meant to be around, like, events. Right? And then it became a way that people travel and and they can safely all over the world, which is fine. But where it gets super dicey is when you have these people, you know, especially over the last year, there's been so many gurus on Instagram that are like, here's how you can quit your job, like, this year by buying Airbnbs. And they're like, all you have to do is, you know, you use these tools to analyze Airbnb cash flow potential. And then it doesn't matter what you pay for the property because it's gonna cash flow. So we see this a lot in North Idaho. If people that came out and they were buying properties for, like, 10 to 20% over retail value because it made sense as an Airbnb off of last year's cash flow numbers.

Mike DeHaan: [6:56] But all of a sudden, those numbers dip 40% because no one's staying at your crappy property that you didn't put nice furniture in, didn't actually make worth the price you're hoping to charge, you're in big trouble because you now have a asset that you overpaid for significantly and is gonna cost you money to liquidate. Right? Like, there's a transactional cost to real estate. So all a sudden, you're gonna be eating it super hard. And you're seeing that everywhere. And something else that's happening right now as well coming out of COVID, stuff starting to open up again. Hotels are wanting to start to make money. They're getting, like, more competitive with their prices. Whereas Airbnb is full of a bunch of people who are getting greedy. Right? Because they're trying to charge way too much money for those assets they overpaid for. So, like, my wife and I, when we when we were traveling, you know, in in Spain couple weeks ago, we stayed in a five star hotel in Barcelona. It was, a $120 a night. Five star Marriott hotel. Like, like, three years ago, it would have been $500 a night. Right? It would have been so much different. But now it's it's a cheaper alternative than Airbnb. And I don't have to do anything. It's clean.

Mike DeHaan: [7:56] You know, I don't have to worry about people putting cameras in the toilet to watch me poop or whatever. You know, like, maybe, but, like, theory stuff that you have to think about with Airbnb.

Dan Austin: [8:04] You're right. You're right. Yeah. You're absolutely right. Yeah. There it's it's, and maybe it's just capitalism at its finest where people took what you know, I perceived Airbnb as a place to a have more of a community where you're traveling, like a traveling community where you're, you're staying with a person and you're meeting somebody new. If you stay at a hotel, you don't tend to

Mike DeHaan: [8:23] do that. You go

Dan Austin: [8:23] to your room. It's just that there's no community there. And it's a cheaper way to travel. Right? So you could, you could pay somebody $40 instead of a hotel, a big hotel corporation, $200. The it's changed. Right? Capitalism took over, people saw opportunity. And now the hotel people who I strongly believe have, you know, a lot more political sway and a lot more capital to withstand market shifts or to withstand price shifts than the little Airbnb person who stretched to buy this third home in, you know, Florida for an Airbnb business, and they quit their job because they're making so much money.

Mike DeHaan: [9:00] Yeah. Exactly. Right? And, yeah, it it it'll be interesting. So, I mean, you know, from a investor perspective, if you're opportunity seeking investor, like you should be if you wanna take this game seriously, you do things like we do and like we we teach our students in the instant investor program to do, where, you know, you market for your properties and you try to find these discounted properties to be buying well. If you can think of a way to start targeting people that have bought rental properties like short term rentals in the last year, I guarantee you there's gonna be some good opportunities that come up. Especially in markets that had major growth. I was actually thinking about this this morning. I wonder if there's a, like, a way we can pull a list of people that have have properties listed on Airbnb in North Idaho that have bought them in, like, the last eighteen months. Because North Idaho is bubbly. Right? And, like, I know there's gonna be some people up there that are gonna start hurting here pretty soon. And, you know, and especially if they were overpaying for stuff, they probably have decent money and are gonna value the convenience and have a little bit of fear. So if you can go, I mean, they'll probably take a haircut if you can get them out of a situation they've got themselves into.

Dan Austin: [10:04] Oh, yeah. I think there'll be I think there'll be a lot of opportunity coming up where people bought things in a frothy environment. Mhmm. And, know, I think that's where you and I are well, let me step back. I would say too, there I've talked to quite a few people over the last couple years that that's all they do is Airbnbs. Right? Let's, like, I guess, stay on this topic. Like, that's what they're like. I run an STR business. I'm like, that's cool. They've got 10 or 12 of these properties. They're making really good money, and they run it as a business. It's not like a long term rental. It's a it's a business. Like, that's like, they're the one trick pony. There's a handful of other people that I know who recently in the last three to four years stepped into apartment syndication. That's all they do. They syndicate, they get other people's money, they call brokers in cheaper markets than where those people live. Right? So they get a bunch of people's money from, know, California, New York, other, you know, wealthy states, and then they go and call a broker in, say, I don't know, Ohio or somewhere there and say, hey, do you got any deals? And they make a relationship and they're like, yeah, got a deal for you. It looks like a deal, but it's really probably not that great of a deal. It's just that it's super cheap compared to where you can buy things in in your market. And so that's what they do. They syndicate.

Dan Austin: [11:08] They're not necessarily property managers. They're not necessarily property investors. They're syndicators. And so they're they're this kind of one trick pony, where I don't think when you have market shifts like this, those people can sustain it. Right? If all of you all of sudden, all your Airbnb is shut down or reduced by 40%, you're in trouble. If you you can no longer syndicate right now because interest rates have gone up and so many deals have been blown apart. Right? And, and, and their investors are kind of getting scared. Like, well, let me just hold on six months. Well, you, can you sustain six months without an acquisition fee or six months without adding some cash flow to your portfolio? Maybe not. And so as, as you pivot and adapt, you've got to look, be able to analyze and underwrite deals that are maybe different than what you've done in the past. One thing you and I were just talking about before this call was, what are we going to do with our property or vacant or near vacant land that we own? Mhmm. And how would that what plays could we make now that are a long term vision, to take advantage of kind of sliding softening of the market and and those sorts of things, whether that's new builds, sell the land now, or or, you know, rent it, lease it, whatever.

Mike DeHaan: [12:12] Yeah. And and there's there's different exits that you have to consider. Right? So, you know, this is something that we've been looking at heavily, especially with some of our I don't wanna say, like, c class properties. They're not necessarily in bad neighborhoods, but they're kind of like properties that were projects in progress, not necessarily in terms of a renovation, but just in terms of, you know, dealing with tenants. There's people there that we don't wanna necessarily kick out. They're paying rent, whatever. But we know that there's an impending, you know, renovation or some impending expense that we have to deal with. Right? And when we bought a lot of these places last year, you know, it was kinda easy to have a plan of, like, we'll fix them up, we'll sell them, as all that sort of stuff is pretty standard. We'll keep it as a rental, whatever. But now the market started to shift, the buyer pool is getting smaller, people's buying power is getting significantly smaller because of the rising interest rates. All of a sudden, you have to start looking at other options. Right? So but so then you also have to look at what's the cause of that. So the reason the buying pool is getting smaller primarily is because people have less affordability. Right? They're not able to afford, you know, the the bank cost. They can't put as much down on, like, these larger priced homes, those sort of things. But there's unique ways that you can provide that opportunity to people such as doing seller wraps.

Mike DeHaan: [13:28] Right? Doing lease to own contracts where you're able to recover some of your money, but also cash flow. Right? You know, different I guess, what are some of other stuff that we've talked about? So, like, we know people that are selling things on, a seller carry if it's, a lower price point home, or basically you buy it cash or you bring in a private investor that isn't gonna call the note, and then you can just sell it on on a full on carry to somebody else instead of, like, in a a wrap, there's an additional mortgage. So, like, for example, in Chicago, there's a very large Hispanic population. And a lot of those people, they tend to have more money, but, less credit. Right? They don't really have credit because that's not part of their culture. So we're doing with a lot of our deals in Chicago area right now. We have two. We're doing this right now where we are buying it, basically as a seller finance from the previous owner, because, you know, they like, it doesn't really make sense for us to buy it as cash, or, you know, us get a mortgage on it just because the rates and things are so much higher. And the people don't want to give up cash flow, they don't want as much of a discount, if you know this equity. So we're basically gonna pay more for it, they're gonna carry a note, and then we're gonna sell it on a wrap, basically, with us having a second mortgage to another party, right, we're gonna recover most of our down payment. And then we're gonna have a cash flow in the middle.

Mike DeHaan: [14:39] So, you know, if we're paying the seller a thousand dollars a month, we're gonna charge them $1,400 a month, plus have them put a down payment as we pull out all of our money, and we're making $400 a month as rental income. Right? So basically, know, we have a little bit of spread on the front, plus we have some residual income just like a rental property, but without having to have quite as much baggage. Yeah. And it's just a more creative way to do it. Right? And it's, you know, it's the biggest challenge with these is trying to explain it to sellers, you know, and I was trying to explain it to even other investors. Like, some of our people in our group, we go into these topics, they're just like, what? I don't even understand what you're saying. But if you can start to figure out the creative financing and get into these opportunities, sorry, get into these, conversations, start closing these opportunities, that's where a lot of the deals are gonna come from over the next little bit, where affordability is a big issue, you know, or like the one that we talked about in in Spokane that we have here. It's like this janky little house that we've talked about, you know, we had tenants in there for a while, they were paying rent, it was fine. We knew it was gonna be a project we bought like six months Yep. But now, like, tenants are moving out. I'm looking at it and it's like, well, we have $10,000 down payment into this thing. It's not like an incredibly desirable house to list on the market, especially when the buyer pool is getting smaller.

Mike DeHaan: [15:57] Yep. But if we can find someone that, you know, doesn't mind living in a project, wants, like, a cheap property and necessary can't necessarily get bank financing, you know, sell it to them as, a lease to own sort of situation where they are required to put money down, they can fix with the property, do whatever they want. And then we just sell it to them at kinda like a primo rent because a portion of that's going to equity on their purchase price. Right. And so, you know, it doesn't make sense as a rental. We don't really wanna fix it up. We don't have good exit. So instead we find the happy medium, we basically, you know, put someone in, they can fix it up themselves, and then they just get to buy it

Dan Austin: [16:32] in the future. Right? Or we tear down and and build a duplex on it.

Mike DeHaan: [16:35] Exactly. Right? And that's our other backstop on it because it is a small house. If we that that was what we talked about earlier is worst case scenario, they go in and they screw up the house. Well, then we're kind of back to where we're anyway where we have this house that's already kind of fucked. So just tear it down.

Dan Austin: [16:49] Yeah. Yeah. Yeah. It's a decent sized project for for a small house and but we got such a good deal on it. And it's a stat in itself as a seller finance deal to us. So Yeah. Kind Yeah. Of what I hear too is like what you're saying on a lot of this stuff to highlight is what we're looking at doing and what maybe our advice to people would be is, maybe start looking at trading out of some of your crappier assets, some of your C class assets that you know, in the next couple of years are going to require a major capital investment and you may not be able to get any more rent out of it. So you're going to have to put money into it, but not actually get a better ROI for your money. Yeah. So if you can trade out of those where you can take fat, you know, fat stacks off the table, because you recently bought it, know, three, four years ago. And with where the market's been, you can still take out some of that profit really easily. Maybe re trade deals that you're in now. If you're, if you're in deals where, because think about this, the bank will retrade on you too, right? They'll just come to you and say, sorry, we're not gonna do that deal. Right? We want a 7% interest rate when you're underwriting at a five. Yep. So you may have to and we're doing that with a lot of our contracts we have now is really that we put under contract on longer closes. We're like, hey, we can't We can't, sorry, we can't buy your house or your, your building with that, at that price.

Dan Austin: [18:01] We need to either walk away or you need to be at this price for us.

Mike DeHaan: [18:04] Mhmm.

Dan Austin: [18:05] Because interest rates have shot up, which not only affects us as a buyer, but it affects the future buyer too, if it, especially if it's gonna be a flip property. And if we're gonna wholesale it to a flipper, their end buyer is going to be paying much less because of the affordability issue. And then, yeah, lastly, talking about the affordability issue, instead of saying houses and buildings are not affordable, how can you make them be affordable? That way you can still do investments. You can still make money and doing that creative financing, or whatever that, that creative solution you have with affordability. Cause I don't think affordability is going to change in the next twelve to eighteen months per se. Maybe towards the end of next year, but, interest rates can't go down quite yet.

Mike DeHaan: [18:43] Mhmm.

Dan Austin: [18:43] And house prices, nobody wants to drop their house price right now. If they're in flight on, on a new build, or they're looking to sell their house this year, and they only bought it a couple years ago or whatever it is, like, people just aren't ready to take a haircut on anything yet. Mhmm. And and quite honestly, they don't have to yet because there's still quite a bit of demand. And and so we're in this weird spot, where affordability is for the vast majority of people is going to to continue to exist as an issue.

Mike DeHaan: [19:10] Yeah. Exactly. And, you know, ultimately, it comes down to the people that make real money, you know, is in in any business, real estate's no different. They're the ones who create opportunity regardless of the market conditions. You know, the people that are basically they just ride with the market conditions and squeeze out whatever they can. Sure, you can make money. But if you wanna make, like, big money, and you wanna do it consistently over the entirety of your career, you have to create this opportunity depending on what you're able to do with the current market. You know, whether that's, you know, ecommerce, whether that's, you know, a brick and mortar business, right, whether that's real estate investing, whatever it is, learning to create those opportunities in different ways. And it is work, right? You know, you can learn how to do one side of business, the market changes, and everything that you learned is kind of pointless now. And that's the truth. Right? It's just like everything else. You know, if if if you work for, you know, Boeing. Right? And then all of a sudden, there's a new technology that comes out that you have to learn, like, manufacturing techniques or whatever how to build that airplane. You don't learn that, you're gonna be made obsolete real quick. Exactly the same in your business. Right? K.

Mike DeHaan: [20:13] So in terms of creating opportunities, that's something that we're gonna use for our educational topic. So for creating opportunities, the oil flood house, you guys have heard us talk about a little bit. One of the big reasons that we we bought it, you know, we kinda we overpaid for a tiny bit of looks at the house from from face value. One of the reasons we bought it, last year now was because it had an oversized lot. And we figured out that you could basically sub, separate out the back lot of it and sell that separately. And so we created a pretty large opportunity there and something that several people in our group have asked us about, you know, people that new investors are are fascinated with in general because seems like you can make a lot of money, in a way, like, from opportunities that are, you know, like, obvious to other people. So for our educational topic after the instant investor program, Dan is gonna talk about some of the things that he learned and figured out while going through that process of basically separating a lot and creating a pretty large revenue opportunity for us from that deal. So really quick, some stuff about the instant investor program, and we'll be right back. The instant investor program is our twelve week group coaching program, which includes a self driven course and access to our private investor community. We will take you through the full process of how we find our leads, how we market, how we do our sales and follow-up, and how we determine the best strategy for every opportunity that comes our way.

Mike DeHaan: [21:37] On top of that, you will also join a community of other like minded investors nationwide that are all marching towards the same goals, and you will have direct access to Dan and myself so you can continue learning and growing with us as we continue to adapt and grow our business. So whether you're a new investor or already established, our systems can help take you to the next level. So if you think you might be a good fit, go to the instantinvestorprogram.com and schedule a call, and we can have you talking to motivated leads in as little as two weeks. Alright. Welcome back, everybody. Lot separations. I'm not I'm not sure how, like, title this. Like, creating opportunity by splitting a lot or like by like these different land plays. It's something that's it's kinda sexy on on Instagram. People talk about this stuff all the time, how they bought like an acre and turned in these lots as well developer or whatever. But this one was kinda unique because it was a house with an as extended lot. We basically created an infill lot, which I would argue is almost better because that individual lot is freaking valuable. Like, you know, if you look at the location.

Dan Austin: [22:36] Yeah. The well, so we have a couple different scenarios or I guess, things we can talk about, as far as lots we've got going on.

Mike DeHaan: [22:43] Well, I guess I guess let's talk about like the how of doing the the one with the oil house. Like how exactly you Yeah.

Dan Austin: [22:51] Well, yeah, let's get in that. But I I would wanna preface it by saying, like, look at what's going on around you before you do stuff like that.

Mike DeHaan: [22:58] Right.

Dan Austin: [22:59] Because it might not make sense for you in your market. Like, if you guys have land, all the I mean, right now is not the best time to be picking up big chunks of land to subdivide for a developer. Yeah. Just developers are pulling back right now. It's probably, it's probably not the best time. Nobody wants to hold onto land right now. But if you already have it, or you're negotiating with somebody that has land, that has some, something unique about it. In the case of this place, it really wasn't quite apparent other than the fact that when you walked around it, the back lot, first of all, it's a corner lot.

Mike DeHaan: [23:29] Mhmm.

Dan Austin: [23:30] Okay. So that's that's interesting. So there's two different approaches via two different roads. Location is great. So we knew the house itself would hold value regardless of what happened. So the risk there were like, you don't really get, I mean, you can get better location, but this is a pretty dang good location. But one of the houses adjacent to the backyard was built on a lot that looked like the same size as this backyard. Exactly. Right? Not, there's not many, not many other houses with that sort of lot size, but we saw that one. It's like, okay, pretty sure we can do something with this. So then the first step you always want to do is just call, call whoever the city, the county, whoever's in charge of the land development, the zoning and all that sort of stuff and ask them, Hey, at least in our market, they're pretty easy to work with. You call them and just ask them some questions, and talk to them about, Hey, I've got this property I'm buying or that I've purchased. I'd like to see if I can sub, you know, subplot this into two lots. Can you take a look at it? And then they'll tell you what your options are. And then also looking at zoning, talking to your zoning department, if you need to, re entitle a property, which basically change the entitlements of what you can do to that property.

Mike DeHaan: [24:37] Mhmm.

Dan Austin: [24:37] Whether that's like take it from a single family to being able to build a duplex or a multi multiplex or whatever, just looking at that zoning. So initially that's an important task too, to know because whatever something is, doesn't mean it has to stay that way. And that's where you can create value. And that's why you have to recognize the opportunity ahead of time and then work with your, your local government zoning departments and development departments to see what you can and can't do with that lot. Cause that can change and swing the value a ton. Yeah. The second thing that you want to look at initially, as you're looking at these opportunities is where are the utility hookups? Cause that can be a major cost. Again, on this one, we're lucky because this was on a corner lot and there were utilities, water and sewer mainly in the road in front of the existing house, as well as down the adjacent road perpendicular to it. So we had two options.

Mike DeHaan: [25:30] Mhmm.

Dan Austin: [25:30] One, we could just go through our existing property with an easement to grab off of a side street water sewer, or we go off more of the main busier road and grab water sewer there at at a shorter distance. So I knew that that would be easy to do, but then you can also call those departments within your city or your county and say, hey, what would it cost to get a tap to from this lot to that, from from this line to this? And then I would say you do the exact same thing for your electric and natural gas, if that's an available utility. Call your utility company that's a provider and say, hey, what it's gonna cost for me to bring in gas and electric from this location to this location? And they'll tell you. And now you have your cost for for water, sewer, electric, gas straight from the people that are

Mike DeHaan: [26:11] gonna do it for you. Yeah. So I I I think one of the key points you're making, across a, the initial conversation of what you're allowed to do and then the utilities is don't be afraid to just ask people. I think one of the biggest things that a lot of people worry about when they when they sort of sense there's an option like this is they go, well, I don't know how to do that. Well, neither did we. You know, we're like

Dan Austin: [26:33] Or it's perceived to be harder than it really is.

Mike DeHaan: [26:35] It perceived to be harder. Right? Yeah. I mean, and it does take a while, but remember when we were first underwriting this deal, you know, we we locked it up at a price that was too high for the house and we knew that. Right? And basically, plan was to just do underwriting on it and, you know, figure out what we could do with that backlog before we actually closed. So, you know, we signed a contract, we had a thirty day close, then we got to work, you know, we were calling the city, we were calling all the utilities like that. And I remember, like, because I actually called the city initially to sort of see if we could what it looked like to separate that lot off. Like, we could even do that. And I called up and I was, like, trying to explain to the lady what we wanted to do. And she was like, have you ever done this before? And I said, no. She's like, okay. That's fine. And then she's gave me, like, the elementary school version of what we needed to do. Right. Like, it's not like they're expecting you to be an expert. Like, they're willing to work with you in in most places. I mean, I'm assuming most places are like that. There might be depending on your town or county or whatever.

Mike DeHaan: [27:30] They're like, you're

Dan Austin: [27:30] an idiot. They're not all, but yeah.

Mike DeHaan: [27:32] Most of them are gonna be pretty good. And then same with the utility folks. Right? You know, I like that. Like, they're going to tell you what has to be done because they're, like, legally required to. They're not gonna, like, let you do something illegal or, like, sort of hanging out to drive by telling you something's easier than it is. I'll say if anything, most of time, they're more conservative. And they're gonna tell you that it's more difficult or that it's more expensive than probably could be if it was done. Correct. You know? Yep. So Yeah. So I I would

Dan Austin: [28:00] say with, like, within a couple week period of time, if you're talking about a simple, what we call in our market, like a short plat, sub plat, where you're basically, gonna take one lot and turn it into two lots. Within a week or two, you can have called all these people and and figured out if it's possible and and roughly what costs. So you would call your your city or county and or both, figure all that out. What, what you can and can't do with it, what their fees are in our market. It was like $5,000, which is crazy, but we had to pay that much. And we, and we found the whole process out and then we had to pay for a surveyor. So you can call surveyor. We had to pay like $5,500 for him to do all then you can call your utility companies, see what, what it's going to cost to get utilities to that property. Then you can call some builders and say, Hey, what do you charge per square foot to build something at, like a rental grade? Or maybe you're trying to build a mid level home for somebody. They're going to tell you, you know, anywhere, depending on your market, maybe it's 150 up to $300 a square foot. So you can say, well, if I build an average size house, which is in this neighborhood, maybe it's 1,800 square feet. And the builder says it's going to be 200 square feet. Plus, then you have all these utility costs, any entitlement costs, any survey subplot costs. Now you can add all that together and say, well, it's gonna cost me $300,000 to build this home and have it all ready to go and turnkey.

Dan Austin: [29:18] Places But are comping for 500 in that same area. And now you're like, okay, I have a $200,000 spread here. Yeah. That's, that's, that's really all we did. We didn't even look at building because we just knew the location was great, that we knew there would be a good spread on the land itself to sell to a builder. Because not that we don't wanna do this, but we just aren't haven't ever done a new build. Exactly. Maybe this will the first time we do. Who knows?

Mike DeHaan: [29:39] Yeah. And we and we flipped infill lots. This is like, you know, a a class neighborhood in Spokane, super desirable. And and I mean, we've seen lots on, like, the hot streets in the area selling for, up to $300,000. This isn't quite that level, but, I mean, 200 to $2.50 is definitely a possibility.

Dan Austin: [29:57] Well, and and the thing I posted on my Instagram recently, if you don't follow me, it's at investor Mandan, Instagram, that. Literally the day we went out to public comment for the, the final, it's like a two week public comment you have to do whenever you change, make changes to, to your property. They the city announced that they voted in a a change

Mike DeHaan: [30:20] Mhmm.

Dan Austin: [30:21] To for affordable housing issues, meaning that you can put ADUs, or, you know, DADUs, DAUs, and stuff like that. They've changed the laws to those. Yeah. Well, they they

Mike DeHaan: [30:30] basically they basically changed the rules for the zoning. So we've always had really strict single family zoning in Spokane, but they

Dan Austin: [30:37] basically made it It's created urban sprawl.

Mike DeHaan: [30:39] Yeah. Exactly. They they made it now. So everything that's single family now you can build, like, two units if it's, a certain size of lot.

Dan Austin: [30:46] You can build a duplex on any lot. Yep. And, you can before you could have an ADU, but it had to be a family member that rented it from you. Now you can have that second ADU and they changed the square footage of that ADU before it used like 600. Now it's like 800. They have some different rules, and this is within our city limits. And so it's it's it's just perfect timing for us anyways on that. And so that that changes the value, in my opinion Mhmm. Probably to higher value because now there's more uses for it. Exactly. Yeah. We finally, after two and a half

Mike DeHaan: [31:17] years of business, we finally had a change that was luck in our favor. Not against us.

Dan Austin: [31:22] Well, and if you think about it, and I go, let's just do back a napkin math for those listening and following along. So say, we'll just run the numbers. Right? So we paid 300,000 for this house. Right?

Mike DeHaan: [31:32] 289,000.

Dan Austin: [31:34] 289. We did about a $90,000 renovation, which included furnishing it. Yeah. And then we just paid 10,000 for a furnace. So, you know, whatever. Say we're at 400 all in on this thing. Mhmm. And we we've done cash out refinance, all that sort of stuff. We're we're we get appraised for 4 fifth appraised for $4.50. So as a flip, we would have made money. Barely, you know, barely. We wouldn't have lost money. So say we're at 400,000 all in, and now we're another say $10.10, 12,000 into this subdivision of this lot. Now we have a lot there. What if we can build a duplex, which in that neighborhood could easily rent for $2,000 a unit per unit for us, a two one or maybe even a three two, if you could squeeze it in their unit. So that's $4,000 So could we build something for $400,000 in our market that, that, which would make it a 1% rule? Absolutely. So we could easily build a 1% rule duplex and then have a cash flowing asset that we're pretty sure bird out of already next door to it too. That makes pretty good sense, right, from my If napkin we

Mike DeHaan: [32:40] were if we were gonna build or even if we were gonna sell it, you know, it goes from being a flip where we're into a 400, and we're trying to sell for $4.50. And if everything goes well, that would make like $5,000. Right. Right. You know, if there's holding costs, right? It's really it's it would be less than that potentially. Or, you know, we go into this flip, we're in a 400. We're into, you know, sell for $4.50. But now we've created this lot that's worth $200,000. Right. All of a sudden, the house that we ever paid for is a $200,000 profit.

Dan Austin: [33:08] Absolutely. A huge flip. Right? That's like Huge. Yeah. Exactly.

Mike DeHaan: [33:11] Yeah. I mean, when when was the last time someone did a $200,000 spread on a $400,000 property? Right. Not very often.

Dan Austin: [33:18] No. It's very rare. It's a good deal. So more to come. Mike and I, I I kinda like to build. So I wanna build stuff. Mike wants to sell stuff. So we'll let you know what we end up doing on that one and share the numbers. We can do a case study on it.

Mike DeHaan: [33:29] Yeah. It'll be interesting endeavor because, you know, especially going into new builds and things like that right now, I think, like, developments are becoming less desirable. But at the same time, this is also in a neighborhood, like, sort of super hot. And generally, it's hard to find, like, nicer houses in. Just because, like, their old classic house is something that's fresh and clean in this a class neighborhood, I think, would will continue to be desirable no matter what happens in market conditions. Absolutely. Yep. So cool. Do you have anything else on that topic that you wanna share? Any other good learning points? Like, I guess I guess all in, it's one thing we didn't we didn't cover. The total cost to that lot separation. I know it'll be different from place to place, but, like, what's a reasonable expectation for someone?

Dan Austin: [34:08] Yeah, I would say per lot in like a market like ours, which is, I would say mid range expensive, not the most expensive, but we're in the middle. We're we're a decently expensive secondary market. Right? Mhmm. Ours and and actually, that doesn't even matter because everywhere is going be different on depending on your taxes and what your county and city, requires as as state, but we were 10 to 12,000. So if you're going to do a few different lots, you're going to probably be, you could probably estimate that much. It will definitely be a per lot thing, but as you gain scale, it won't be, you know, 10,000 per lot. But, half of that cost was just paid to pay the surveyor. Right? And so you might pay a surveyor, you might be doing a quadplex or a four unit, lot separation. Maybe you pay instead of $5, you pay $10. You're not paying him, you know, $20

Mike DeHaan: [34:54] Mhmm.

Dan Austin: [34:54] To do the survey, but you're gonna pay him a little bit more. And then the the city the city will always have, like, a tax per certain thing that you're doing, whatever those are. So that will always add up. But, again, with scale, the price is reduced per lot. Correct. It's not cheap. I I would say this is not cheap.

Mike DeHaan: [35:09] Yeah. It's it's it's not cheap. I mean, 10 to 12,000 for something that's worth worth 200. That's pretty Right.

Dan Austin: [35:14] But but if a typical infill lot in your market is is selling with utilities at 70, you're going to put $15 plus care plus six months of carry into it on taxes and stuff like that, you're going to be like, it's not like a super screaming deal where you're making a ton of money, but it's still worth doing.

Mike DeHaan: [35:31] Yeah, absolutely. And and so the biggest thing is going and even just go on Zillow and see if there's, like, pending, you know, you can filter by lands and loss and just see if there's stuff that's either pending or has sold in the immediate area and what those sold for. Because you're right. So the complete contrary, if you look at, you know, stuff we do in in Dayton, Ohio, they're, like, giving lots away over there. They're, please take your property taxes

Dan Austin: [35:51] are so their property taxes are so high. They're, like, I'll sell you my house, but you have to buy the lot next door. It's, no. That's all my cash flow. Think you got a $500 a month tax payment on a piece of land that nobody wants. I know.

Mike DeHaan: [36:02] I Like, we literally had that conversation with somebody where they said they would love this on my property, but, you know, I will throw in this lot for free, but you have to take it. Yeah. So that way I'm not stuck paying taxes on it.

Dan Austin: [36:13] Which just sounds like a good idea. Right? But, no, it's a terrible idea. Don't buy a never take the free lot.

Mike DeHaan: [36:17] Yeah. So always do your own due diligence there. Alright, guys. Well, that's our show for this week. Thanks for listening. If you could please go like, subscribe, download, and share this podcast with anyone who you think might find it interesting. That really helps us out a lot. Go ahead and follow us on Instagram. I'm at Mike underscore invest. Dan is at investor man Dan. And if you want to learn from us and, you know, sort of see how we grew our business, how we're teaching other people in our our mastermind group to grow their business, go to instantinvestorprogram.com. And, there's a calendar link there. You can book a call with one of us. So go check that out, and we would love to see if you'd be a good fit. And aside from that, anything else?

Dan Austin: [37:03] No. That's it. No. If you wanna learn more about lots of stuff, I'm by no means an expert, but I do know some experts. So feel free to reach out, walk you through it. Other than that, see y'all next week.

Mike DeHaan: [37:13] Right on. Thanks, guys. See you guys next week.

Speaker 3: [37:16] Thanks for listening. Please leave us a review on iTunes or wherever you get your podcasts. And check us out at collectingkeyspodcast.com for tips and guides on starting your own real estate investment and wholesaling business.